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Federal Constitutional Court Repeals "Berlin Rent Price Cap"

With yesterday’s decision (file reference: 2 BvF 1/20, 2 BvL 4/20, 2 BvL 5/20), the Federal Constitutional Court (Bundesverfassungsgericht) declared the law on rent limits in the housing sector in Berlin (MietenWoG), known as the "Berliner Mietendeckel" (Berlin rent price cap), to be unconstitutional.
Judges of the second senate of the Federal Constitutional Court in Karlsruhe decided unanimously to completely repeal the Berlin rent price cap law, making the law null and void ab initio. This ruling cannot be appealed by the State of Berlin as this has now been enshrined into law.

The decision was made by the second senate of the Federal Constitutional Court in the proceedings on the abstract judicial review of 284 members of the CDU/CSU and FDP parliamentary groups in the Federal Parliament and two specific judicial review petitions from Berlin courts. The decision of the second senate also resolved several pending constitutional complaints before the first senate of the Federal Constitutional Court. This also includes the collective constitutional complaints conducted by us for a selection of housing cooperatives and, separately, a select group of 12 private landlords (see our News Alert from June 2020 as well as WBGD-News and BFW-Newsroom).

Federal States have no legislative power
In its decision, the Federal Constitutional Court states that the Berlin rent price cap violates the order of competences of the German Constitution (Grundgesetz). According to the court, rent regulations for private and privately financed housing stock qualify as civil law and thus, fall within the concurrent legislative competence under Article 74 (1) No. 1 of the German Constitution. Since the Federal Parliament had already made a final regulation with the social rent control provisions under Sections 556 to 561 German Civil Code (BGB), a separate Berlin state regulation for the private and privately financed housing stock was blocked. Duplication of responsibilities between the Federal Government and the States for the same subject matter is alien to the rules of competence of the German Constitution. However, the Federal Constitutional Court did not address the compatibility of the rent price cap with the constitutional property guarantee and the principle of equality. Therefore, the decision does not set any new guidelines for interpreting fundamental rights for any future laws of the Federal Parliament in regards to housing market regulations.

BGB rent rules apply again without restrictions
With this decision, the judges in Karlsruhe have confirmed our views, which we have been advocating since the beginning of the Berlin rent price cap debate. Already two years ago, we were the first to publish the argument in the legal press, that the Federal States had no legislative power to undermine the socially balanced Federal rent control law under the German Civil Code which had been developed for decades. We also expressed this view already at the expert hearing in the Berlin House of Representatives in December 2019 (see our News Alerts from June 2019, September 2019 and February 2020).
The decision finally brings legal certainty for tenants and landlords. Now also in Berlin, the social rent control law under the German Civil Code exclusively applies again. This also eliminates the de facto advantage of higher earners in good residential locations, introduced by the Berlin rent price cap. Other Federal States are prevented from enacting comparable state rent price cap laws as a consequence of the Federal Constitutional Court’s decision.

Retroactive BGB rent claims possible – balanced approach expected
As the Federal Constitutional Court declared the Berlin rent price cap to be null and void ab initio, rents in accordance with the BGB specifications were always - and will continue to be - legally permissible. Landlords who have reserved the right to charge the higher BGB rent may now claim the difference to the lower Berlin rent price cap rent. Board members and directors will have to examine, on a case-by-case basis, whether and to what extent they are obliged under corporate law or fiduciary rules to make any such claims. It is generally expected that tenants and landlords will act in a socially balanced manner and in a spirit of partnership. Administrative orders by some local housing offices that have prohibited landlords from agreeing to parallel BGB rents as well as rent increases must now be withdrawn and can no longer be enforced. Nevertheless, affected landlords and property managers are well advised to file appeals against any such orders.
Our experts in constitutional and rent price law have assisted clients on several constitutional and compliance law issues relating to the Berlin rent price cap since its conception. With this experience, we are also available for all queries now arising from the Federal Constitutional Court’s decision and any related strategic and legal decisions.